Europe tries to calm panic over Greek crisis

European leaders today set out to try to persuade global markets that Greece's debt crisis will not spread and derail economic recovery.

As the 16 euro countries prepared to meet, French President Nicolas Sarkozy, European Commission President Jose Manuel Barroso and EU President Herman Van Rompuy discussed the financial fallout of the past days which has financial markets testing the euro's strength.

German Chancellor Angela Merkel, whose country holds the key to any solution, spoke with President Barack Obama, who said he supported the effort to deal with the financial crisis.

After the euro dropped to its lowest level in 14 months and bond markets dumped Greek debt, a summit originally called to sign off on the bailout and draw lessons for the future turned into one of crisis management.

EU leaders have insisted for days the Greek financial implosion is a unique combination of bad management, free spending and statistical cheating that does not apply to other eurozone nations, such as troubled Spain or Portugal.

They said the bailout should contain the problem by giving Greece three years of support and preventing a default when it has to pay 8.5 billion euros in bonds due on May 19.

Again today European leaders were almost desperately trying to talk away the problems.

Agreement on rescue for Greece "will be a demonstration of Europe's force, of solidarity," French Prime Minister Francois Fillon said after a meeting with Portuguese Prime Minister Jose Socrates. "We will protect Greece and reinforce the stability of the euro zone," he said.

The markets have taken little heed. Stocks, Greek bonds and the euro plunged even after the head of the European Central Bank, Jean-Claude Trichet, tersely underlined that "Portugal is not Greece. Spain is not Greece".

Along with the eurozone meeting, the G-7 finance ministers were holding a teleconference on the crisis.

After struggling to get ahead of the crisis for weeks, European governments are now underlining their determination to act by speeding approval of their contributions to the a 110 billion euro emergency loan package for Athens.

The consequences of failure could be dire. Many economists think Greece will eventually default anyway, which could deal a sharp blow to the euro and lead to higher borrowing costs for other indebted countries in Europe. Default, or market contagion to other countries could lead to panic, putting consumers off spending and making banks fearful to lend money to businesses and consumers.

In Germany, where bailing Greece out is unpopular, both houses of parliament approved the package and sent it to President Horst Koehler for his signature.

With Italy and France, that accounts for over two-thirds of the European part of the bailout package. The International Monetary Funds add another 30 billion euros.

Even Germany stressed how precarious the situation had become for the whole of Europe.

"The situation is very serious and no one can say that we are already out of the woods with today's decision," Foreign Minister Guido Westerwelle said .

"What is important now is that we must extinguish the fire so no brush fire spreads in Europe, and we must at the same time fight the cause of the fire."

France, Italy and Portugal approved their share.

Even as Portugal prepared to loan money to Greece, its own interest rate gap, or spread, between Portuguese and benchmark German 10-year bonds, was ticking higher - a sign that debt fears were infecting market views of Lisbon's situation.

Greece approved drastic austerity cuts yesterday that will slash pensions and civil servants' pay and further raise consumer taxes. The measures were needed to secure the rescue loans.